A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

Question

Quizplus · Accepted Answer

A firm operating in a perfectly competitive industry will continue to operate in the short run as long as the market price covers its average variable costs, even if it's incurring losses. If the market price is less than the firm's average variable cost, the firm will shut down in the short run because it cannot cover its variable costs.

A Firm Operating in a Perfectly Competitive Industry Will Continue